Growth in factory output growth, as measured by the Index of Industrial Production, rose 4.1 percent in February compared to 7.5 percent in the corresponding period last year, the statistics office said. The January IIP growth has been revised downwards to 1.14 percent from the provisional estimates of 6.8 percent, as high interest rate regime made borrowings costly and curbed consumer spending.

Benchmark indexes Sensex and the Nifty maintained their early gains despite the downward revision in January numbers, as weaker-than-expected industrial production numbers strengthened the case for rate cuts from the Reserve Bank of India next week.

Commenting on the industrial output data, finance minister Pranab Mukherjee told reporters in New Delhi today that the government and the RBI would work together to take steps to revive economic activity in the economy. The 'disappointing' industrial growth performance will have bearing on monetary policy announcement slated for the next week, he added.

The benchmark 30-share Sensex moved in the range of 17,277-17,395 before paring some gains and finishing up 133 points or 0.77 percent at 17,333, while the broader Nifty index rose by 50 points or 0.96 percent to 5,277. Second-line stocks also saw good buying interest, with the BSE mid-cap and small-cap indexes rising 0.9 percent and 1 percent, respectively.

Metal stocks led the gainers, in line with a rebound in commodity prices overnight, after bond yields in Italy and Spain eased and the Federal Reserve's latest Beige Book report showed that the economy continued to expand at a moderate pace from mid-February through late March. Tata Steel, JSW Steel, SAIL, Sesa Goa, Hindalco, Sterlite and Jindal Steel rose 1-5 percent.

Banks rallied, with HDFC Bank, ICICI Bank and SBI gaining 1-3 percent as investors bet on an interest rate cut from the central bank in the upcoming policy meeting on 17th.

Unitech soared 4.4 percent after the Company Law Board allowed the firm to resolve its dispute with its telecoms joint venture partner Telenor through international arbitration in Singapore. Max India jumped 8.3 percent on reports that Japan's MS&AD Insurance is close to buying a 26 percent stake in a joint venture between New York Life and the company for $544 million.

Financial Technologies rallied 3.7 percent after the Supreme Court asked market regulator SEBI to reconsider its application to start a full-fledged stock exchange. ABB added 1.7 percent as the power and automation technology group said it has won an order worth Rs. 75 crore from Delhi Metro Rail Corporation.

Elsewhere across Asia, key benchmark indexes in Australia, Hong Kong, Japan and Singapore rose between 0.7 percent and 1.1 percent, as Alcoa's surprise first-quarter profit, a decrease in Italian and Spanish bond yields and remarks by a European Central Bank official that indicated the ECB could resume bond purchases through its securities markets program encouraged investors to do some bargain hunting.

A rebound in commodity prices overnight and better-than-expected employment data out of Australia and South Korea also helped investors shrug off fears over North Korea's imminent rocket launch.

Chinese shares rallied, with the benchmark Shanghai Composite index climbing 1.8 percent to end higher for a third straight session, as the World Bank's downward revision of its Chinese growth estimate to a 13-year low of 8.2 percent in 2012 heightened expectations of further policy easing in the months ahead. The report assumed significance as it came ahead of China's official first-quarter gross domestic growth data due tomorrow.

European shares swung between gains and losses, with banks giving up early gains, after an Italian government bond auction showed rising costs for a three-year bond and the euro area's industrial output showed a surprising rise.

Industrial production in the euro area unexpectedly increased 0.5 percent on a monthly basis in February, after remaining flat in the previous month, data released by statistical office Eurostat revealed. Economists were looking for a 0.2 percent decrease.